The Luxembourg government has adapted its' previously announced fiscal reform proposals.
Earlier this year, the Luxembourg government announced proposed changes to the country's corporate and personal tax frameworks, including a progressive reduction (in two steps) of the corporate income tax (CIT) rate from 21% to 18%.
Since our first article on this subject, the reform plans have been amended and these changes would impact corporations. It's important to note that the measures are yet to be outlined in full, and their implementation from 1 January 2017 would only proceed if formalised in a parliamentary bill, and subsequently voted through.
Tax reform updates
- Limitations on the use of future tax losses
Based on the government announcement of 29 February 2016, the initial plan was to limit to 10 years the deferral of tax losses generated from 1 January 2017, and such losses would only be available to offset the taxable income of the subsequent period up to 80% of the taxable income of each period.
However according to the latest announcement made on 21 April 2016, it is now envisaged the carrying forward of losses would be limited to 17 years, and 75% of the profits realised in subsequent years.
The tax losses carried forward from previous years should not be affected by these limitations.
- Other measures aimed at improving Luxembourg's competitiveness
In order to improve Luxembourg's competitiveness, it was announced on 21 April 2016 that the government would work on the development of measures to promote the development of start-ups and SMEs, as well as on the introduction of a new investment reserve regime in order to promote investments.
In order to encourage investments and in particular investments in innovation, the investment tax credit regime would be improved: the tax credit for additional investments is to be increased from 12% to 13% and the tax credit for global investments increased from 7% to 8%.
Regarding investments in real estate, an increased depreciation rate would be introduced to the special depreciation regime.
Other related tax news
- New bill on the automatic exchange of information with respect to tax rulings and advance pricing agreements (APA)
On 22 March 2016, a new bill (the Bill) was submitted for approval to the Luxembourg Parliament. The Bill includes an exception from automatic exchange of information, where a tax ruling or advance pricing agreements (APA) were issued, amended or renewed before 1 April 2016; for companies with a group-wide annual net turnover of less than €40m in the preceding fiscal year.
However, this exemption does not apply to companies conducting primarily financial or investment activities.
- New Form 777 to file in case of rulings and APAs subject to automatic exchange of information
Automatic exchange of information on tax rulings and APAs will have to be carried out by the Luxembourg Tax Authorities (LTA) using a standard format. In this respect, the LTA have recently created the form 777E which has to be completed by taxpayers with tax rulings or APAs falling within the scope of automatic exchange of information.
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